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Today is January 1, 2021, and you have the option to invest in a new chain of coffee shops. The cost of the investment is
Today is January 1, 2021, and you have the option to invest in a new chain of coffee shops. The cost of the investment is $45M now [t=0] and the revenue is uncertain, but is realized two years after the initial investment [t=2]. With 60% probability demand is high and cash flows are $50M [t=2]. With 40% probability demand is low and cash flows are $20M [t=2]. The discount rate is 10%.
a)What is the NPV of the project? Should you invest?
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